Asia Brewery, Inc. vs. NLRC

When a service contractor lacks substantial capital or investment and its workers perform activities directly related to the principal business of the employer, labor-only contracting exists, establishing an employer-employee relationship between the principal employer and the contractor's workers.

Asia Brewery, Inc. (ABI) initially contracted Era Industries (ERA) to supply workers for its brewery plant. After terminating the service contract with ERA, ABI entered into a service contract with Cabuyao Maintenance and Service, Inc. (CMSI) on February 7, 1991, for maintenance, janitorial, and utility services. The contract stipulated that CMSI would provide its own labor force and expressly warranted that the workers were strictly those of CMSI, relieving ABI from any liability arising under labor laws. CMSI eventually placed 400 to 450 workers at ABI.

Petitioner Asia Brewery, Inc. (ABI) entered into a contract with Era Industries (ERA) for the supply of workers to its brewery plant. After terminating the service contract with ERA, ABI entered into a new service contract with Cabuyao Maintenance and Service, Inc. (CMSI) on February 7, 1991. The contract stipulated that CMSI would provide its own labor force and personnel for maintenance, janitorial, and utility services, and expressly warranted that the workers were strictly those of CMSI and not of ABI, relieving ABI from any liability arising under labor laws.

Upon CMSI's assumption of the contract, ABI instructed the private respondents to apply for employment with CMSI. CMSI executed individual employment agreements with the workers, who continued to perform maintenance and janitorial services at ABI. The workers were required to comply with ABI's rules and were prohibited from joining strikes staged by regular employees. CMSI eventually placed 400 to 450 workers at ABI.

On July 5, 1994, private respondents filed a complaint against ABI for non-payment of overtime pay, legal holiday pay, service incentive leave pay, non-regularization of employment, underpayment of night differential pay, and recall of penalties from their 201 files. On July 29, 1991, they filed a supplemental complaint for illegal dismissal, alleging that ABI barred them from entering the premises and confiscated their identification cards after they requested leave to attend a hearing for the original complaint. ABI also informed CMSI that the private respondents were "put on hold" until the termination of the case and requested replacements.

ABI denied being the employer, pointing to the warranties and liability clause in the CMSI-ABI contract. The Labor Arbiter found CMSI to be a labor-only contractor, making the private respondents regular employees of ABI entitled to monetary claims. The NLRC affirmed this decision with the modification that ABI and CMSI are jointly and severally liable. ABI elevated the case to the Supreme Court, arguing that the NLRC misappreciated the evidence and erred in finding an employer-employee relationship.

• Grave Abuse of Discretion: Petitioner contended that the NLRC committed serious errors and manifest misappreciation of facts in finding an employer-employee relationship between ABI and the private respondents.
• Contractual Liability: Petitioner argued that the warranties and liability clause in the CMSI-ABI service contract specifically provided that CMSI assumed all liabilities arising from the employer-employee relationship, thereby absolving ABI of any employer status.

• Judicial Review: Whether the Supreme Court can review the NLRC's evaluation of the evidence in a petition for certiorari.
• Labor-Only Contracting: Whether CMSI is a labor-only contractor, thereby establishing an employer-employee relationship between ABI and the private respondents.

• Judicial Review: No. The Supreme Court's review of NLRC decisions is confined to issues of jurisdiction or grave abuse of discretion, not the correction of its evaluation of evidence.
• Labor-Only Contracting: Yes. CMSI is a labor-only contractor because it lacked substantial capital and its workers performed activities directly related to ABI's principal business, making the workers regular employees of ABI.

• Judicial Review: The Supreme Court is bound by the findings of fact of the Labor Arbiter and the NLRC absent any showing of grave abuse of discretion, lack of jurisdiction, or excess thereof. The Court's jurisdiction to review NLRC decisions does not include correcting the evaluation of evidence, as this is confined to jurisdictional issues or grave abuse of discretion.
• Labor-Only Contracting: Labor-only contracting exists when (a) the person supplying workers does not have substantial capital or investment in the form of tools, equipment, machinery, work premises, among others; and (b) the workers recruited and placed are performing activities directly related to the principal business of the employer. The records, including the stipulation of facts adopted by the petitioner, showed that CMSI's main business was to supply workers to ABI and it failed to prove substantial capital. Furthermore, the workers were assigned to ABI's production department, performing activities related to ABI's principal business. The NLRC also noted that CMSI placed 400 to 500 workers at ABI, a considerable workforce giving rise to the suspicion that the service contract was designed to evade employer-employee obligations. Therefore, an employer-employee relationship is implied by law between the principal employer and the labor-only contractor's employees.

• Labor-Only Contracting — Labor-only contracting exists where (a) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machinery, work premises, among others; and (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. Where labor-only contracting exists, the law implies or establishes an employer-employee relationship between the employer and the employees of the labor-only contractor to prevent circumvention of the Labor Code.
• Scope of Judicial Review over NLRC Decisions — The Supreme Court's original and exclusive jurisdiction to review NLRC decisions does not include correction of its evaluation of evidence, but is confined to issues of jurisdiction or grave abuse of discretion. The Court is bound by the lower labor tribunals' findings of fact absent grave abuse of discretion.

• "There is labor only contracting where (a) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipments, machineries, work premises, among others; and (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer." — This passage defines the two elements of labor-only contracting, which is the controlling doctrine applied to establish the employer-employee relationship between the principal and the contractor's workers.
• "As a rule, the original and exclusive jurisdiction to review a decision or resolution respondent NLRC does not include a correction of its evaluation of the evidence, but is confined to the issues of jurisdiction or grave abuse of discretion." — This passage establishes the scope of the Supreme Court's review over NLRC decisions, limiting it to jurisdictional and grave abuse of discretion issues rather than factual re-evaluation.

• Loadstar Shipping Co., Inc. vs. Gallo, 229 SCRA 654 — Cited to support the rule that the Supreme Court's review of NLRC decisions is confined to issues of jurisdiction or grave abuse of discretion, not the correction of evidence evaluation.
• Neri vs. NLRC, 224 SCRA 717 — Cited for the definition of labor-only contracting, specifically the two requisites involving lack of substantial capital and the direct relation of workers' activities to the principal business.
• Vallum Security Services vs. NLRC, 224 SCRA 781 — Cited for the doctrine that labor-only contracting establishes an employer-employee relationship between the principal employer and the contractor's workers to prevent circumvention of the Labor Code.

• Labor Code provisions on labor-only contracting — Applied to determine that CMSI was a labor-only contractor, thereby making the private respondents regular employees of ABI and holding both entities jointly and severally liable for the workers' monetary claims.

Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.